As businesses face the far-reaching effects of tariffs and ongoing economic uncertainty, there has never been a more crucial time to revisit and refine your employment agreements.
The landscape of employment law is constantly evolving, and the recent imposition of tariffs has added new layers of complexity for employers trying to adapt to the shifting market conditions. A thoughtfully crafted employment agreement is not just essential for ensuring compliance with employment standards and provincial legislation, it also provides the flexibility needed to navigate these unpredictable times.
To help stay ahead of the curve, here are five key areas to consider when reviewing your employment contracts:
1. Temporary layoffs
Temporary layoffs, once an uncommon practice in some sectors, have become more prevalent in the wake of economic challenges, and will surely rise further with the introduction of tariffs. While temporary layoffs can be a useful tool for employers facing periods of reduced business activity or economic strain, they must be carefully managed to avoid legal pitfalls.
Notwithstanding that some employment standards legislation provides a right to lay off employees, such a layoff may still give rise to a constructive dismissal claim if not addressed in an employment agreement.
Employers should ensure that their employment agreements clearly outline the conditions under which temporary layoffs can occur to avoid confusion and reduce the potential for claims of constructive dismissal.
2. Group terminations
In certain circumstances, employers may face the difficult decision of reducing a large portion of their workforce due to financial pressures or other business challenges. When planning a group termination, it is essential for employers to consider both legal and practical factors.
Employment agreements should be updated to include provisions on group termination policies and how the notice period is calculated, ensuring compliance with relevant employment laws. Revising these clauses now can help protect your business and provide clarity in navigating potential workforce reductions.
3. Changes to employment terms
Changes to business operations, such as internal restructuring, will often lead to required changes in compensation, job titles, hours of work and/or employee duties and responsibilities. While employers have the right to make changes to an employee’s role, these changes must be reasonable and clearly communicated and, where such changes are considered to be a substantial change to the fundamental terms or conditions of employment, reasonable notice is required unless expressly agreed otherwise.
Employment agreements should clearly outline the circumstances under which changes can occur. If an employee feels that a significant change in their job duties is unreasonable or unjust, they may claim constructive dismissal. By addressing potential changes and the process for modifying job responsibilities in advance, employers can mitigate the risk of such claims.
4. Termination provisions
Valid and enforceable termination provisions are crucial in every employment agreement, and they become especially important during uncertain times.
Employers should review termination clauses to ensure that they are clear, enforceable, and compliant with current legal standards. Particular attention should be given to the duration of notice periods and any clauses related to post-employment obligations (such as non-compete and confidentiality clauses). In many jurisdictions, overly restrictive, vague or ambiguous termination clauses may be unenforceable, so ensuring compliance with the applicable employment legislation is key to avoiding costly legal disputes.
5. Alternatives to dismissal: Exploring other options
Before considering termination, employers may choose to explore alternatives that can help retain talent while meeting business needs.
One option is the Government of Canada’s Work-Sharing Program, which allows employers facing a decline in business (of at least 10% due to factors outside their control), to temporarily reduce employees’ hours to prevent layoffs.
Other alternatives include voluntary leaves of absence or resignation agreements, which can reduce the employer’s payroll liabilities if done properly. Employment contracts should include flexible provisions to accommodate these options. Clear terms for such arrangements can help maintain a positive relationship with employees and reduce the risk of litigation.
Now is the time to act
With the ongoing economic uncertainty and the impacts of tariffs, employers are facing new challenges. The best way to safeguard your business and minimize legal risks is to ensure that your employment agreements are up-to-date and aligned with current legal requirements. By taking the time to review and update your employment contracts, you’ll be in a stronger position to navigate these challenges effectively and protect both your business and your workforce.
Our labour and employment team understands the importance of a properly drafted employment agreement. With years of experience advising employers on how to tailor contracts to their specific needs, we are here to provide practical legal advice and answer any questions you may have as you navigate these complex challenges and maintain the flexibility required to manage your workforce effectively.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.
